Credit Suisse cuts write-downs

Credit Suisse cuts write-downs
By Andrew Hurst Reuters - Tuesday, February 12 04:59 pm

ZURICH (Reuters) - Credit Suisse trimmed full-year write-downs linked to the subprime crisis to 2.0 billion Swiss francs (926 million pounds) on Tuesday and pulled in billions in new investments from wealthy clients.

"The big picture story is they have dodged the subprime bullet and they have managed risk very well," said Derek Chambers at Standard & Poor's Equity Research.

The bank also reported a 49 percent fall in fourth-quarter net profit from continuing operations to 1.33 billion francs, slightly below analysts' expectations, as losses in its huge asset management business eroded results.

Credit Suisse's result is likely to throw subprime-related losses into even sharper relief at UBS, which reports its own results on Thursday. UBS warned last month that it would unveil a full-year loss of 4.4 billion francs for 2007.

Credit Suisse has suffered limited fallout from the meltdown in U.S. subprime mortgages which have set off write-downs running to more than $100 billion by banks globally.

The bank offered a glut of data to reassure investors its exposures to subprime-related and asset-backed securities were under control.

"We differentiated ourselves by reducing our exposure to subprime earlier, in late 2006," said Paul Calello, who heads investment banking at Credit Suisse. "We took a bold move in the level of disclosure as we felt it was necessary to give the full picture of how we managed to perform well through the challenging markets of 2007," he told Reuters.

Credit Suisse cut its U.S. subprime exposure by 59 percent in the fourth quarter to 1.6 billion francs from 3.9 billion.

UBS, Credit Suisse's chief rival, has taken charges of $18.4 billion (9.4 billion pounds) on subprime exposures and Citigroup and Merrill Lynch have also taken huge charges.

Credit Suisse's stock initially tumbled as investors took fright at the bank's remaining exposure to the credit crisis, but then recovered to end up 2.5 percent, while the DJ Stoxx European banking index, was 3.73 percent higher.

Subprime write-downs in the fourth quarter were 1.26 billion francs, Credit Suisse said, though hedging earlier in the year had helped it lower its full-year charges for bad credits from an estimate of 2.2 billion francs made earlier.

"These write-downs are towards the higher end of expectations, and importantly, there is still significant residual risk left on balance sheet," Goldman Sachs analysts said in a research note.

The average forecast for net profit in a poll of 16 analysts was 1.45 billion francs.

One of the few banks to avoid heavy subprime losses, Credit Suisse said total exposure to leveraged loans, commercial and residential mortgage-backed securities and structured products was 66.2 billion francs at the end of the year.

That was down from 100.7 billion francs at the end of the third quarter, according to Reuters calculations.

The bank said it had no trouble finding investors willing to take on some of its exposure to commercial mortgage-backed securities (CMBS), which fell to 25.9 billion francs at the end of 2007 from 35.9 billion francs three months earlier.

"We have had good success finding interested parties in those loans," said Calello. But he declined to comment on how much more of the CMBS portfolio, which accounts for more than a third of the bank's declared exposures, was being sold.

The net write-downs on exposures were "among the lowest in our peer group," said Wilson Ervin, Credit Suisse's Chief Risk Officer at a presentation for analysts and investors.

Turning to growth opportunities, Credit Suisse said it hoped to expand in areas such as commodities and derivatives which it saw as less cyclical than some of its traditional activities.

"We also see growth in emerging markets. We have seen less of a link with emerging markets and developed markets than we have seen historically," said Calello.

DODGING THE BULLET

Credit Suisse's Ervin said some of the hedging positions that the bank had taken to protect its risky exposures had turned out to be profitable, allowing it to reduce overall write-downs for the year.

In the investment banking business, Credit Suisse had traded profitably in its fixed income business despite market conditions which have been badly hit by the subprime crisis, Chief Financial officer Renato Fassbind said.

But the bank slipped up in its asset management business where it lost 247 million francs in the fourth quarter due to writing down the value of a money market portfolio by 774 million francs after bringing it onto its own books.

The bank took the portfolio onto its balance sheet in the third quarter after a string of fund withdrawals by clients.

"Private banking was a very good performance but it is disappointing to see a loss in asset management," said Andreas Weese at UniCredit. He said he had expected total write-downs of around 1 billion francs in the final quarter.

Net new money in wealth management was far better than expected at 12 billion Swiss francs, up from 8.6 billion francs in the fourth quarter of 2006 and compared with an average forecast in a Reuters poll of 8 billion francs.